Apple’s dividend could double

Over the past six months, many companies have reduced or suspended dividends in order to conserve cash throughout the COVID-19 pandemic. As those streams of passive income dried up, investors in companies like Apple likely considered themselves lucky as long as their stocks maintained their existing dividend payments.

“However,” tech and consumer goods specialist Leo Sun writes, “there are still plenty of cash-rich companies that can easily afford to double their existing dividends without missing a beat.”

Image: Apple Fifth Avenue
Apple Fifth Avenue

Leo Sun for The Motley Fool:

Apple reinstated its long-suspended dividend back in 2012, and it subsequently raised its payout every year. However, the stock’s multi-year rally reduced its forward yield from over 2% in 2016 to just 0.7% today.

That paltry payout won’t attract any serious income investors, but Apple spent less than 20% of its free cash flow on its dividend over the past 12 months — which suggests it can easily afford to double its current yield.

Over the long term, it needs to curb its long-term dependence on the iPhone while expanding into next-gen hardware markets. That transition could be challenging, and investors are putting a lot of faith in Apple, as its stock trades at over 30 times forward earnings. Therefore, Apple could reward patient investors for sticking around as its valuations throttle the stock’s near-term growth.

MacDailyNews Take: After the surprising 4-for-1 split, anything is possible. Possible, but not likely, as we expect Apple would be more interested in investing in buybacks over a major dividend increase.

10 Comments

  1. Every company should be required by law to pay a dividend and that dividend should be at least 60 percent of the company’s profit. Why should the company sit on that money? Most expansions are paid for by the business burrowing the money, the lending markets afloat. Very few companies ever pay cash, or use their profits, to build out. Shareholders deserve a bigger return on their investment. The price at which the shareholders could sell a share is irrelevant and should not be considered as doing enough for the shareholders. The deal is, as a business, you could not raise the capital from a bank, so choose a different method. So, this method was extremely risky for the investors, they deserve real money on that loan, not nothing or some small 2%. If a company no longer wants to pay the 60% or more dividend they should buy back all the shares.

    1. Why shackle a company by insisting they pay 60% of their profits as dividends. Many if not most companies need that cash to ensure stability and invest for growth. Your suggestion would make companies less competitive and stifle development.
      Borrowing money to growth is not always a good idea. It can leave the company with a legacy of debt that comes back to bite when times are lean.
      Apple, the most profitable company in the world by many metrics only borrow money to reduce their share number. It is only possible because of low interest rates. It saves them money in the long term and they have maintain a consistent debt load ever since they started the buyback.

      1. Oh please, but ok. Let me modify my suggestion. Every company which issues stocks will be allowed to retain individual shares, any number of shares it decides to hold. Now when dividends are pay on shares, those that the company holds too, will get that dividend paid. I will also throw this in, the company pays no taxes, state or federal, if it pays out 60%+ of profits on to shareholders including the shares it owns, but the company may only hold 40% of the shares at a given time for such a tax break.

      1. That comment is ill advised. Buybacks make the intrinsic value of remaining shares more valuable. It is a way to provide returns to remaining shareholders in a way that they can defer taxes. If 5 people went in together to create a company, one wants out, the remains 4 can buy him or her out. The overall value of the company remains the same, but the remaining 4 have a bigger stake in the company.

  2. What Apple can afford to do and what it does are an entirely different matter. Apparently, Apple prefers to spend money on stock buybacks. I would certainly appreciate a higher dividend. A dollar per share dividend would suit me just fine although I’m fortunate to be receiving what Apple is currently offering. I guess Apple prefers to keep taking out long-term debt for stock buybacks. Maybe stock buybacks are a good thing but I better understand a larger quarterly dividend because it ends up directly in my pocket. I’m not going to lose sleep over it as I’m a senior citizen and relatively financially secure. If I didn’t have my Apple stock, I would be much worse off. Apple will do whatever it wants and won’t listen to any minor shareholders. As long as Apple is planning for staying strong financially well into the future, then that will have to be good enough for me.

    1. Apple should not have any long term debt, nor should they do buybacks, one of things that saved Apple when they were in trouble 22 years ago was not having any debt. Saving isn’t a bad thing to do more people (humans) need to do it.

  3. Since we really don’t know where we are in terms of the pandemic and the economy I’m a strong believer that Apple should hold onto as much cash as possible. What is their current percentage of profits over the past two years? Hold onto that percentage and save the rest of the cash.

    Reality is that we don’t know where we are in terms of the economy, Sure we know we are in the Trump Recession, but Samuelson has indicated that we are in a Depression. If the economy slows down too much then apple’s cash holding will be a major powerhouse for growing assets.

    As for the vaccine – don’t hold your breath. An average person might be lucky to get a shot by mid 2021. It might be safe to go to the movies in Summer 2021. Might.

    Companies need to first protect their future and that demands access to cash – preferably in their own accounts.

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